What a Chinese “PR offensive” tells us about prospects for the country

While Mordy suggests some of the statements emerging from the conference are little more than PR, including a pledge by China to “treat foreign companies equally,” he highlights the presence of the American CEOs as a reminder of China’s importance. American multinationals know that their fortunes are inextricably linked with China, both as the world’s factory and still one of the largest middle class consumer markets on the planet. China still contributes around 30 per cent of global GDP growth and is set to be the largest market for cars, consumer goods, retail products, and luxury goods.

The CEOs at the conference had to toe a fine line. Mordy explains that there are often two main sets of interests regarding China’s economy: the Chinese and American governments, and corporate interests in both countries. Washington has progressively become more hawkish towards China and we are heading into a general election where both major Presidential candidates have been happy to use China as a punching bag. Mordy jokes that a disdain towards China may be the only issue on which Biden and Trump agree. China has also appeared more adversarial in recent years. Yet corporate interests, Mordy says, typically prevail between the two poles. A warming of business relations with China could be positive for the Chinese economy and geopolitical tensions between the two nations.

“There was a recognition that cutting off countries is counterintuitive, and that the countries that attempt to isolate China risk isolating themselves instead, because other countries are all to happy to fill the gap,” Mordy says. “If we wall nations off from each other invariably they become rivalrous and hostile. The geopolitical rivalry between America and China is particularly dangerous and the key risk is that the world reverts back to something resembling the Iron Curtain that divided Europe between the West and the Soviet bloc after World War II, or even the 1930s Great Depression, when nations raised tariffs in a fit of beggar-thy-neighbor rivalry. Both of those periods were catastrophic. This conference represented a recognition by that it is in everybody’s best interests to work together and find common ground.”

China does have a long way to climb back, if it’s to resume the pre-eminent place among emerging markets that it held through the 2000s and early 2010s. In decrying the prospects for China, many analysts have said that China is ‘turning Japanese,’ and falling into the same patterns as Japan did when its bubble burst in the 1990s. Mordy disagrees with this view wholeheartedly.

A passionate student of the Japanese bubble, he does not see the same massive collapse of asset values against liabilities that we saw in Japan in China. Rather he sees a crisis of confidence, emerging from a bungled set of pandemic policies that kept China locked down for too long. The Chinese household is not under the same balance sheet pressure that Japanese households were and Chinese equities never achieved the same inflated valuations as we saw on the Japanese stock market. China has further to go, and may require more stimulus as its economy stabilizes, but the forces that pushed Japan into stagflation for decades are not at work in China.